Skip directly to Accessibility Notice
  • Emerging Markets Debt Daily

    Disinflation Forces Prevail For Now

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    May 08, 2020
     

    EM inflation continues to moderate, and Russia’s uptick appears to be an exception. Political noise in Brazil remains high, despite public reassurances that the Economy Minister is in full control of the macro agenda.

    This morning brought more evidence that disinflation forces dominate in emerging markets (EM) at the moment. Headline inflation dropped sharply in Hungary, Mexico, Brazil and Chile, as the coronavirus continues to take its toll on local economies and labor markets. There was one notable exception. Russia’s yearly inflation—while still low by historic standards—accelerated meaningfully in April (from 2.5% to 3.1%). Russia’s core inflation was also higher. Is Russia a stagflation “bellwether”? It looks like April’s inflation was driven mainly by some foods, medical items associated with the COVID-19 and the weaker currency. Several commentators also drew attention to the data collection issue (there were no major price changes in international tourism, for example). We are therefore inclined to treat Russia as a special case for now—and this means that the central bank can continue easing in peace.

    Political noise in Brazil refuses to subside, as the markets demand additional reassurances that Economy Minister Paulo Guedes is in full control of the macroeconomic agenda. President Jair Bolsonaro’s latest political gesture—“I follow Paulo Guedes’s playbook on economics”—was well received by the market, with the currency rallying by 163bps in the morning trade (as of 10:10am ET, according to Bloomberg LP). Bolsonaro also called Guedes “the voice of reason”, but it remains to be seen whether the President keeps his promise and vetoes the anti-COVID increase in public sector wages that Guedes’s team wanted to see.

    China’s Q1 current account number seem to corroborate the consensus expectation of a smaller 2020 annual surplus. The current account slipped into deficit (USD29.7B—see chart below), reflecting the worsening trade balance. April’s unexpectedly large trade surplus (USD45.32B) raised some questions yesterday about the sustainability of this trend, but it looks like April’s exports were an aberration, driven mainly by “catch up” deliveries and stronger demand for medical supplies.

    Chart at a Glance: China Current Account – Improvement Interrupted

    emdailypic.jpg

    IMPORTANT DEFINITIONS AND DISCLOSURES

    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

    The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice.  This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein.  Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results.  Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed.  Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.

    Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity.  Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

    All investing is subject to risk, including the possible loss of the money you invest.  As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money.  Diversification does not ensure a profit or protect against a loss in a declining market.  Past performance is no guarantee of future performance.

  • IMPORTANT DEFINITIONS & DISCLOSURES  

    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

    The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Certain information may be provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as the date of this communication and are subject to change.

    Investing in international markets carries risks such as currency fluctuation, regulatory risks, economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

    All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.